How to generate a tax loss?

[sakowitzm]

I have an unexpected large capital gain this year. Which of course is a good problem, but I'd prefer to not have it - it will wash away my ACA subsidy and hit me two years hence with IRMAA. Are there some kind of (probably esoteric) investments in which one generates a loss immediately and recovers with gains over a period of time? Ideally, I'd be able to recognize as much as $100K in loss for 2022 and have the gains come in over at least a 3-5 year time period, if not longer. Thanks.

 

[COcheesehead]

Do you have losses with any investment in a taxable account?

 

[RunningBum]

If there was such a thing wouldn't you just wait and get in on the recovery?

Closest thing I can think of is to buy a risky option that expires at the end of the year for a loss if it doesn't hit, or gives you great returns that more than make up for the loss of subsidy if it does. I could see doing this for $5 or $10K, but not $100K.

How much is the loss of subsidy and IRMAA hit will this cost you? Maybe $10K or so, probably less if you're single? I wouldn't do anything too crazy to try to get it back.

 

[sakowitzm]

Yes.... but not nearly enough! (Again, good problem!)

 

[sakowitzm]

If there was such a thing wouldn't you just wait and get in on the recovery?

Closest thing I can think of is to buy a risky option that expires at the end of the year for a loss if it doesn't hit, or gives you great returns that more than make up for the loss of subsidy if it does. I could see doing this for $5 or $10K, but not $100K.

How much is the loss of subsidy and IRMAA hit will this cost you? Maybe $10K or so, probably less if you're single? I wouldn't do anything too crazy to try to get it back.

In the end, you're probably right - just take the hit and don't look back. I'm just wondering if there's some esoteric thing that would even out over a few years but generate the loss immediately.

 

[Souschef]

One of my many favorite sayings is, "Do not let the tax tail wag the investment dog".
For example, if you do something to create a $1000 loss, in the 22% bracket you will only save $220. but will be out the other $780.
IMO, even with the ACA subsidy and IRMAA hits, you will still be money ahead.

 

[OldShooter]

One of my many favorite sayings is, "Do not let the tax tail wag the investment dog". ...

Aw ... you beat me to it!

 

[NW-Bound]

If there was such a thing wouldn't you just wait and get in on the recovery?

Closest thing I can think of is to buy a risky option that expires at the end of the year for a loss if it doesn't hit, or gives you great returns that more than make up for the loss of subsidy if it does. I could see doing this for $5 or $10K, but not $100K.

How much is the loss of subsidy and IRMAA hit will this cost you? Maybe $10K or so, probably less if you're single? I wouldn't do anything too crazy to try to get it back.

Extremely easy to lose 100% on options, or even more than what you put down, and this happens more frequently than not.

The loss however is permanent, and that's not something desirable.

 

[38Chevy454]

Do you have losses with any investment in a taxable account?

Just as COcheesehead stated, you can only tax loss harvest (TLH) in a taxable account. So for this year you could sell the losses you have, then very soon repurchase in a different asset so you don't get caught up in wash sale. Assuming the loss sales are in an allocation and type of investments you want, just buy similar but different enough investments. Or maybe a chance to rebalance the allocation, or adjust to be what you want.

I agree don't get caught up in tax strategy distorting the end goal. But if you can offset some losses and stay similarly invested for the long term then TLH does make sense for *this* tax year and offsetting some of the unexpected capital gains. Note that just trying for a loss is not wise financially, but appropriate TLH can make sense.

 

[RunningBum]

Extremely easy to lose 100% on options, or even more than what you put down, and this happens more frequently than not.

The loss however is permanent, and that's not something desirable.

Yes, that's the idea. Suppose the OP needs to lose $5K to recover $10K in lost subsidies*. They could make a very high risk / high reward option play** where they are very likely to lose $5K. So if they lose, they are happy because they got more than that back in subsidies. If they win, let's say it pays $20K. They are even happier because while they've lost the subsidy, they gained more than that with the options play.

* -- this scenario might be possible when there is a subsidy cliff, but that is not in place this year.

** -- I have only dealt with employee stock options so I don't know the mechanics or possibilities of using options for this strategy.

 

[ivinsfan]

It's my understanding that if it's a one off in increased income and you income is substantially lower you may ask for a reconsideration of the IRMAA payment ...

 

[braumeister]

It's my understanding that if it's a one off in increased income and you income is substantially lower you may ask for a reconsideration of the IRMAA payment ...

Only in a few very specific circumstances.

 

[sakowitzm]

Thanks, all. I'll just bite the bullet and be happy for the gains!
m

 

[youbet]

It's my understanding that if it's a one off in increased income and you income is substantially lower you may ask for a reconsideration of the IRMAA payment ...

My understanding is that blue bird, one-time capital gains is NOT one of the things they normally excuse.

 

[ivinsfan]

My understanding is that blue bird, one-time capital gains is NOT one of the things they normally excuse.

I might be thinking about getting it removed after a one off jump in income.....which is obviously different

 

[NW-Bound]

Yes, that's the idea. Suppose the OP needs to lose $5K to recover $10K in lost subsidies*. They could make a very high risk / high reward option play** where they are very likely to lose $5K. So if they lose, they are happy because they got more than that back in subsidies. If they win, let's say it pays $20K. They are even happier because while they've lost the subsidy, they gained more than that with the options play.

* -- this scenario might be possible when there is a subsidy cliff, but that is not in place this year.

** -- I have only dealt with employee stock options so I don't know the mechanics or possibilities of using options for this strategy.

The OP was talking about writing off $100K of gain, in order to get ACA subsidy plus to avoid IRMAA in the future.

Well, if that $100K loss is permanent, it dwarves whatever gain you would get in subsidy.

And nobody has figured out a legitimate way to lose $100K temporarily, but to have 100% chance of regaining it in the future.

You can create a phony transaction in collusion with a partner, but the monetary gain is not worth the risk of jail time and legal fees.

 

[RunningBum]

The OP was talking about writing off $100K of gain, in order to get ACA subsidy plus to avoid IRMAA in the future.

Well, if that $100K loss is permanent, it dwarves whatever gain you would get in subsidy.

Yes, I know, I said:

I could see doing this for $5 or $10K, but not $100K.

 

[mrfeh]

In the end, you're probably right - just take the hit and don't look back.

+1

Focus on the large gain.

 

[gcgang]

Looking for losses? I’ll let you know the next stock I buy (TSLA -$169). They seem guaranteed to decline 20% right after I get in. Lol.